The Limits of Offshoring

For some IT leaders, however, sending infrastructure support offshore is a leap they're not willing to take. Even Maguire gets it. "You have to know your environment very well and you have to have extreme confidence in the vendor," he says. "If they miss something on the infrastructure side, it could cost a company millions. Execution has to be flawless."

Many vendors and analysts tout the cost benefits of offshoring infrastructure work. McKinsey claims that early adopters of infrastructure management offshoring are saving from 20 percent to 60 percent on labour costs. But labour costs are just a slice of the pie - around 20 percent of a company's IT infrastructure spend. "If you save 30 percent on labour, which is just 20 percent of the overall spend, you end up saving 6 percent on infrastructure costs," says Howard Rubin, president of consultancy Rubin Systems and an MIT researcher. "You'd do yourself more good ripping apart the whole thing and rebuilding it - especially if you're talking about moving to an offshore market, where you suddenly find turnover at 18 percent and there are geographic issues and time zone issues. That's a lot of grief to go through for 6 percent." Rubin is not anti-offshoring, but he warns that sending infrastructure support offshore is not a "one-dimension value proposition". At IFC, for example, offshore support makes sense not o nly because it shaves some costs, but also because the organization itself is global. "Most of our employees are plus or minus four hours from India," says Piatt, "not plus or minus four hours from the East Coast of the US."

Sometimes it's the type of technology support that makes offshoring less attractive. IT leaders with mainframe shops are more likely to want to sign over those boxes to an outsourcer, which rules out a lot of offshore providers. "It's a stable technology, there's little innovation and it's viewed as getting rid of a headache," says Everest's Tisnovsky. And it can be hard to find mainframe skills offshore.

JM Family Enterprises handles 70 percent of its business transactions on its mainframes. The $US11 billion, privately held automotive services company recently renewed its infrastructure outsourcing deal with mainframe mainstay IBM. But JM Family specified in the contract that the infrastructure support stay onshore. IBM was surprised by the request, says Shawn Berg, JM Family's vice president of technology operations, but ultimately acquiesced. "IBM clearly wanted the option," adds JM Family CIO Ken Yerves. "It's a five-year contract and I'm sure over that period they'd like to make sure they could leverage that cost option."

Berg says his company wanted to have influence over who works on its account. So JM Family negotiated final say on which IBM employees support its system. Berg admits that perhaps it shouldn't matter whether support personnel are in Houston or Hyderabad, India, but it does. "We have a lot of custom code, so our support model is challenging even when the resources are in the state," says Berg. "Adding another layer of complexity with the time zone and everything else doesn't make sense." The deal makes it easier to ensure IBM employees are adequately trained and turnover is a less pronounced issue.

JM Family has contracted with both Cybage and Keane to perform application development work offshore for over a year now. But "on the application side, it's easier to throw things over the wall", says Berg. In running the business day to day, "if something happens on my box, I need support on the fly". He doesn't want to wait for someone new "to ramp up". In the past, he adds, "the knowledge of JM Family was lost when someone who was working on the account left". (See "Remote Desktop Management: The Final Frontier", end of story, for reasons why desktop management isn't often outsourced.)

Meanwhile, some CIOs may be constrained by the compliance requirements of government regulations or industry standards. Venky Rangachari, vice president of information technology for StarCite, which provides on-demand meeting management tools, has his infrastructure managed from Shanghai. But it's handled by the company's own employees in China, as well as in the US. Rangachari not only wants to make sure that infrastructure administrators understand StarCite's business, he also needs to ensure they handle customer data in a way that complies with Payment Card Industry (PCI) security standards. StarCite has many Fortune 500 customers in the financial services industry. "Access to customer data, financial information and security is critical," Rangachari says. "A lot of companies that do infrastructure support may not be PCI compliant."